Obama’s economic advisers

Austan Goolsbee: U. of Chicago neoclassicist and “Sicko” critic

David Cutler: Harvard economist who believes
that high health costs are good for the economy

Jeffrey Liebman: another Harvard economist and
former Clinton adviser who favors privatizing social security

Last night I was on my stationary exercise bike watching early MSNBC news coverage of the New Hampshire primaries prior to vote totals being reported. The pundits were falling all over each other in praise of Barack Obama’s campaigning skills. I was especially struck by Tom Brokaw’s describing the Black candidate as “A thoroughbred who has broken away from the pack,” a perfect encapsulation of the idiotic horse race character of these elections.

Despite the intense rivalry between Obama and Hillary Clinton, they both are cut from the same mold, namely the Bill Clinton presidency. In his 2004 speech to the Democratic Party convention titled “The Audacity of Hope”, Obama adopted the bipartisan, centrist pose perfected by Hillary’s husband during his regime:

The pundits, the pundits like to slice-and-dice our country into Red States and Blue States; Red States for Republicans, Blue States for Democrats. But I’ve got news for them, too. We worship an “awesome God” in the Blue States, and we don’t like federal agents poking around in our libraries in the Red States.

Since Obama’s speeches are rather thin on substance, you have to extrapolate their meaning from sentences such as the following, which occurred in the same 2004 address:

Now, don’t get me wrong. The people I meet — in small towns and big cities, in diners and office parks — they don’t expect government to solve all their problems. They know they have to work hard to get ahead, and they want to. Go into the collar counties around Chicago, and people will tell you they don’t want their tax money wasted, by a welfare agency or by the Pentagon.

Since welfare was gutted long ago, we can only presume that this reference was meant to establish Obama’s belt-tightening fiscal outlook. Although it is not widely understood, Obama is pretty much committed to the neoclassical economics outlook of his home-town University of Chicago. Since becoming Senator, he has relied on the advice of a professor named Austan Goolsbee, who calls himself “a centrist, market economist” (Washington Times, July 16, 2007).

Goolsbee has been a columnist for Slate.com and the NY Times, as well as a standup comedian. His economics are not meant as a joke, as I understand it. His columns are written very much in the same vein as fellow U. of Chicago neoclassical economist Steven Levitt’s “Freakonomics,” examining everyday problems such as “Why you get stuck for hours at O’Hare.” Most are fairly uncontroversial except for the swipe he took at Michael Moore’s “Sicko”, whose single-payer recommendations violate his free market principles.

Another adviser with a particular interest in health care is David Cutler, a Harvard economist who was also an adviser to Bill Clinton–surprise, surprise. Cutler wrote an article for the New England Journal of Medicine in 2006 asserting that “The rising cost … of health care has been the source of a lot of saber rattling in the media and the public square, without anyone seriously analyzing the benefits gained.”

Anxious to show the good side of rising costs, Cutler and a group of other economists defend the idea that a powerful and profitable medical industry can serve as an engine of economic growth in the USA as the wretched Gina Kolata reported in the August 22, 2006 NY Times.

By 2030, predicts Robert W. Fogel, a Nobel laureate at the University of Chicago Graduate School of Business, about 25 percent of the G.D.P. will be spent on health care, making it ”the driving force in the economy,” just as railroads drove the economy at the start of the 20th century…

Other economists agree.

”We have to spend our money on something,” says Robert E. Hall, a Stanford University economist.

In a paper published in The Quarterly Journal of Economics, Dr. Hall and Charles I. Jones of the University of California, Berkeley, write: ”As we get older and richer, which is more valuable: a third car, yet another television, more clothing — or an extra year of life?”

David Cutler, an economist at Harvard, calculated the value of extra spending on medicine. ”Take a typical person aged 45,” he said. ”They will spend $30,000 more over their lifetime caring for cardiovascular disease than they would have spent in 1950. And they will live maybe three more years because of it.”

I guess this is why they call economics the dismal science. It should be noted in passing that the aforementioned Robert W. Fogel was the co-author with Stanley Engerman of “Time on the Cross”, a book that argued that slaves actually had it pretty good under the plantation system. His latest book is titled “The Escape from Hunger and Premature Death, 1700–2100: Europe, America, and the Third World” that posits a “technophysio evolution” that is filled with Panglossian enthusiasm about capitalism’s ability to bring prosperity to the developing world.

Another Harvard University adviser to Obama is Jeffrey Liebman, a Harvard economist who co-authored a paper on the feasibility of privatizing social security when he was an adviser to Bill Clinton. Apparently, the momentum toward adopting such a proposal was halted after the Monica Lewinsky affair put the president on the defensive. Liebman has co-authored a book on social security “reform” with Martin Feldstein, another Harvard economist who was–appropriately enough–the chairman of the Council of Economic Advisors under Ronald Reagan. In an article titled “The Rich, the Poor, and the Economists” that appeared in the January 2002 Monthly Review, Michael Yates notes the following:

Before he became Reagan’s chief economist, he [Feldstein] was an expert on the economics of social security. In published papers, he claimed to have empirically demonstrated that the social security system in the United States inhibited savings. Since savings are the source of capital investment, the implication of his research was that the social security system also reduced investment and thereby reduced the growth rate of the economy, since investment is the engine of economic growth.

Feldstein’s work fit nicely into the growing conservative movement which arose after the post World War Two boom came to an end in the early 1970s. The Keynesian economics that was gospel during my college years was giving way to a return to the pre-Keynesian theory that “freely” operating markets (free from the poison of government control and regulation) were the only solution to all economic problems. Led by the famous “Chicago Boys,” especially Milton Friedman, the anti-Keynesians carried the day in the economics profession and still do. No wonder, then, that when Ronald Reagan became president, he tapped Feldstein to chair the Council. For years, Reagan had been railing against social security from his General Electric radio pulpit. Now here was an economist who could lend professional credence to Reagan’s reactionary views. Social Security would be a tough nut to crack. It was an extremely popular program, run with great efficiency and effective in sharply reducing poverty among the elderly.

There was just one problem. Feldstein’s research was fatally flawed. Two staff economists at the Social Security Administration asked Feldstein for his supporting data. After three years of repeated requests, he sent the data to them. When they tried to use Feldstein’s numbers to replicate his results, however, they could not. They uncovered an error in the computer program Feldstein had used, and when they corrected the error, the results were exactly the opposite of Feldstein’s. That is to say, the social security system actually encouraged savings and, according to Feldstein’s cherished “free market” theory, facilitated capital formation and economic growth. (For more on this, see “‘Superstar’ Feldstein and His Little Mistake” in Dollars & Sense, Dec. 1980, pp. 1-2 and the citations therein.)

One imagines that the average primary voter in Iowa or New Hampshire has not even the slightest clue that Obama is carrying around such baggage. For most of them, the mantras of “change” and “hope” are supposed to be sufficient to earn their vote, at least that was what was expected in New Hampshire. In utter defiance of the media coronation of Obama, Hillary Clinton was the choice of the people in this miserable, economically stagnant New England state. The World Socialist Website, whose political insights are sometimes undermined by their boilerplate calls for building revolutionary parties (i.e., their own) has a rather astute explanation for Clinton’s victory:

The outcome of the Democratic primary suggests that Clinton benefited from a growing concern among working class voters over the state of the US economy. Clinton was the only candidate to raise the growing danger of recession in Saturday’s televised debate, and exit polls showed that the economy was the number one issue of those who turned out to vote, whether they cast a Democratic or a Republican ballot. A staggering 98 percent of those who voted in the Democratic primary said they were “very” or “somewhat” worried about the economy.

Clinton ran ahead of Obama in the working class industrial city of Manchester, New Hampshire’s largest, and there were significant class and economic distinctions between their voters. Clinton led Obama by sizeable margins among those with family incomes less than $100,000 a year, among union members, among those without college degrees, among those who felt that the state of the US economy is poor, and among those with children in the home. Her largest margin was among single working women.

Perhaps the most striking distinction between Clinton and Obama voters concerned feelings about their family’s economic futures. Those who said their families were “getting ahead” backed Obama by 48 to 31 percent. Those who said their families were “falling behind”—a much larger group—voted for Clinton by 43 to 33 percent.

Of course, they will eventually be disappointed in a Clinton presidency because her economic program and his are virtually identical. In considering the “differences” between the two, I am reminded of what Fred Halstead used to say when he was running for president on the Socialist Workers Party ticket exactly 40 years ago: “Whoever wins the election, the American people will end up the losers.”